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Call Buyers Swarm TiVo Inc. (TIVO) Amid Price Spike

However, some of TIVO's call volume could reflect hedging activity

by 10/21/2013 1:23 PM
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Option Brief: TiVo Inc. (NASDAQ:TIVO) is trading about 3.6% higher today, despite a lack of notable news drivers. This positive price action hasn't gone unnoticed by option bulls, as roughly 23,000 calls have switched hands thus far -- about 19 times the intraday norm. By contrast, around 1,800 puts have been exchanged. Meanwhile, the stock's 30-day, at-the-money implied volatility (IV) has climbed 6.2 percentage points, or 21%, to rest at 35.8%.

Leading the pack is the January 2014 14 strike, where almost 14,000 calls have crossed the tape -- including a block of 5,127 contracts for the ask price of $0.45 each. Since today's volume easily exceeds current open interest levels -- and IV at this strike has ticked 6.2 percentage points higher since the opening bell -- it's safe to assume that new long positions have been initiated here.

By purchasing the calls to open, the block trader is counting on TIVO to surmount the breakeven rail of $14.45 (strike price plus the initial premium paid) by January expiration. This reflects an increase of about 10.1% to the stock's present price at $13.13, as well as a level not surmounted on a daily closing basis since June 6 -- the day before a steep news-related bearish gap.

The delta for this call stands at 0.40 -- up from yesterday's reading of 0.29 -- suggesting it has a 40% chance of finishing in the money ahead of the close on Jan. 17. Should the shares remain south of the strike price over the next few months, the buyer will be forced to part with the initial cash outlay (assuming he holds the calls through expiration). It should also be noted that short interest on TIVO rose by 4.2% during the past two reporting periods, and now accounts for a healthy 6.8% of the security's available float. In other words, some of today's out-of-the-money call activity could be the work of skeptics looking to hedge their shorted positions.

From a technical standpoint, the stock has advanced around 33% during the past 52 weeks, and has bested the broader S&P 500 Index (SPX) by close to 8 percentage points over the last 60 sessions. Meanwhile, TiVo Inc. (NASDAQ:TIVO) is tentatively on tap to report quarterly earnings on Tuesday, Nov. 26, and has trumped analysts' bottom-line estimates in five of the past eight quarters. What's more, the equity has averaged returns of 0.1% and 2.3% the day and week after unveiling results, respectively. Consensus estimates have pegged TIVO's fiscal third-quarter earnings at 6 cents per share.

For further data -- such as charts and sentiment indicators -- on TiVo Inc. (NASDAQ:TIVO), please go to our TIVO quote page.


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